One-Hit Wonders

Prince Lobel’s “To-Do” List for CAURD Licensees Prior to Commencing Operation

Published

1 year ago

February 22, 2023

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Becoming the recipient of a coveted CAURD license is an extraordinary opportunity that can bring joy and excitement to Justice-Involved individuals who have been impacted by the previous criminalization of cannabis. It can also leave new licensees wondering what steps to take next.

In an effort to help CAURD licensees commence their operations, the Prince Lobel Cannabis Team has put together a description of six issues that every CAURD licensee should address in order to successfully and efficiently launch an adult-use retail dispensary.

1. Commercial Contracts

Commercial contracts are an integral part of any business and are crucial to a successful CAURD launch. Unfortunately, they can also be complicated and confusing. CAURD licensees will be required to enter numerous contracts before commencing operation, potentially including a potential Pop-Up License, Lease Agreement, Labor Peace Agreement, Vendor Contracts, and Website Design Agreements.

CAURD licensees choosing to accept a retail location provided by the Dormitory Authority of the State of New York (DASNY) will be required to execute a lease agreement. The lease agreement must be with an entity affiliated with DASNY, in which the licensee becomes a subtenant of the provided retail location.

CAURD licensees are required to enter a Labor Peace Agreement, a contract between the licensee and labor representatives. Under these agreements, licensee must agree to be neutral during any potential union efforts, while the union organizers agree to not strike or otherwise disrupt the employer’s business operations.

Vendor contracts are also critical. New York State allows CAURD licensees to purchase cannabis and cannabis products from distributors on credit. However, all agreements to purchase cannabis on credit must be reported to the Office of Cannabis Management (OCM) with the terms of payments and credit. The OCM may invalidate any agreement that it deems commercially unreasonable or where it suspects discriminatory pricing practices.

Finally, the New York Social Equity Cannabis Investment Fund (Cannabis Fund) may not be able to finance every purchase that a CAURD license needs to make. Therefore, CAURD licensees may need to enter financing agreement with third parties in order to raise necessary working capital for their dispensary.

Lending agreements and other financial contracts involving cannabis, which remains federally illegal, are highly specialized and require specific disclosures. Basic forms found online likely will not adequately protect CAURD licensees’ interests when entering credit agreements. Prince Lobel’s attorneys can review CAURD licensees’ commercial contracts and lease agreements as well as help them draft lending agreements and other financial documents.

2. Executive Recruitment & Compensation

Employees are the backbone of every company. CAURD licensees will need to build a competent team of experienced individuals to be successful in the cannabis industry. CAURD licensees should develop an organizational chart that outlines key C-suite Executives (i.e., chief executive officer, chief operating officer, chief financial officer, etc.) as well as a staffing plan that designates critical management staff (i.e., general manager, floor manager, inventory intake manager, etc.) and other retail floor employees (i.e., bud tenders, cashiers, greeters, etc.). CAURD licensees should begin considering how to fill these essential roles and the appropriate compensation and benefit packages for each position.

Further, CAURD licensees should familiarize themselves with New York State labor law, including unemployment insurance obligations, day of rest and meal period requirements, mandatory paid periods, and overtime compensation rules.

Prince Lobel Strategic Advisors can help pair CAURD licensees with experienced cannabis industry executives to help fill their C-suite. Further, Prince Lobel’s attorneys can assist CAURD licensees with drafting executive compensation packages and employment contracts as well as non-compete and non-disclosure agreements. Prince Lobel can also help provide trainings on how to remain compliant with the nuances of NYS labor law.

3. Employee Training Manual

CAURD licensees are responsible for the actions of their employees, as any violation committed by an employee within the scope of their employment is considered a violation committed by the licensee. Thus, every CAURD licensee must ensure that their employees possess the necessary education and training to perform their duties in compliance with New York law, regulation, and guidance.

CAURD licensees are required to train all employees within 30 days of being hired. The employee training comprises a minimum curriculum involving subjects ranging from the history of cannabis use, prohibition, and legalization, to compliance with and operation of inventory tracking systems. Further, every CAURD licensee must maintain a written Employee Training Manual covering such topics as worker guidelines and security, operating and safety procedures, and information about the types of cannabis products that the dispensary sells.

While there is no shortage of top-notch talent coming from out of state, the legacy market, and other educational and mentorship programs, the overall success of any dispensary will come from the quality and comprehensive scope of the licensees’ Employee Training Manual and employee training.

Prince Lobel’s attorneys can help CAURD licensees draft an Employee Training Manual that is compliant with the Office of Cannabis Management’s (OCM) regulations and guidance and particular to the unique needs of their business and staff.

4. Standard Operating Procedures

Standard Operating Procedures (SOPs) are the vital organs to every cannabis dispensary. SOPs essentially cover every operational course of action that occurs in a dispensary, ranging from opening and closing procedures to inventory and quarantine procedures.

While numerous cookie-cutter SOPs can be found online, CAURD licensees should make sure that their SOPs are compliant with New York law, regulations, and guidance. An SOP must also be tailored to the site plan of the licensed premises and the needs of the licensee’s business to ensure that the dispensary runs smoothly and effectively.

Prince Lobel’s attorneys can assist CAURD licensees with drafting and reviewing a site-specific and legally compliant SOP.

5. Intellectual Property Protection

Successful branding and marketing are key components for any company, especially in a highly competitive market like cannabis. A CAURD licensee must ensure that its most valuable asset—intellectual property (IP)—is protected.

Intellectual property encompasses everything from a company’s patents and trademarks to its copyrights and trade secrets, including its business name, logos, designs, mottos, and website domains. Consequently, the merit of CAURD licensees’ intellectual property and the strength of their IP protection will have a significant effect on the value and success of their businesses. CAURD licensees should ensure that their IP and brands are adequately protected.

Prince Lobel’s attorneys can make sure that licensees’ business names and branding do not infringe on registered marks in order to avoid unwarranted and costly cease and desist actions. Further, our team of IP attorneys can help CAURD licensees register their business name, logos, designs, mottos, and website domains for New York State trademark protection to ensure that their IP is protected from unauthorized uses and infringements.

6. Marketing and Advertising Regulations

Marketing and advertising go hand-in-hand with a company’s IP and are crucial to the success of any company. While the purpose of every company’s marketing team is to exercise its creative skill and artist expertise to increase brand likeness and awareness, New York regulators have established strict rules regarding the marketing and advertising of cannabis businesses that significantly limit how licensees can engage consumers.

New York State’s cannabis marketing and advertising rules impose rigorous regulation on the time, place, and manner of cannabis advertisements, including required warnings and support services information, interior signage requirements, and restrictions on exterior signage, as well as prohibitions on making any health claims, using commercial mascots, passing out handbills, and advertising at sporting venues, video game arcades, shopping malls, and fairs that receive state allocations.

CAURD licensees and their marketing teams should become familiar with all state law, regulation, and guidance related to the marketing and advertising of adult-use cannabis businesses and/or consult experienced legal counsel to ensure compliance with all marketing and advertising rules.

Prince Lobel’s attorneys can review CAURD licensees’ marketing materials to ensure that they contain all necessary warnings and are compliant with law, regulation, and guidance. Additionally, Prince Lobel can provide training on these subjects for CAURD licensees and their marketing teams.

Prince Lobel Tye LLP, with offices in Boston and New York, has helped hundreds of cannabis establishments across New England commence operations, including the first medical cannabis dispensary in Boston and the first adult-use retail dispensary in Massachusetts, and recently played a key role in the launch of Smacked LLC – New York’s first Justice-Involved and for-profit adult-use retail dispensary.

Prince Lobel’s attorneys look forward to helping more CAURD licensees successfully launch their dispensaries in the near future. If you need assistance commencing operation of your Conditional Adult-use Retail Dispensary, please feel free to reach out to these members of our experienced Cannabis Team:

For CAURD questions: David C. Holland, James K. Landau, or Andrew Schriever

For Commercial Contracts and Financing: John Bradley, Max Riffin, or Douglas Trokie

For Executive Recruitment & Compensation: John Bradley, James K. Landau, Andrew Schriever, or David C. Holland

For New York Employee Training Manual: David C. Holland, James K. Landau, or Andrew Schriever

For Standard Operating Procedures: David C. Holland, James K. Landau, or Andrew Schriever

With thanks to Dalton Battin for his assistance on this alert.

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One-Hit Wonders

Driving Under the Influence of Marijuana

Published

3 months ago

January 24, 2024

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No national standard exists to determine how long someone should wait to drive after consuming marijuana. However, experts at the Colorado Department of Public Health and Environment recommend waiting at least six hours after smoking less than 35 milligrams of THC and eight hours after eating or drinking something containing less than 18 milligrams.

For reference, a “typical” marijuana cigarette contains at least 60 milligrams of THC, and most edibles contain around 10 milligrams per serving size. A 12-hour wait is safer, as the high (and subsequent drowsiness) from smoking a typical amount lasts far longer.

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One-Hit Wonders

How can it help distressed cannabis companies today?

Published

1 year ago

April 6, 2023

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Without the option to declare bankruptcy—due to federal illegality—the only recourse for cannabis businesses in distress to become solvent and / or distribute assets to creditors is to enter into an expensive and difficult judicial cannabis receivership. Receiverships are inherently adversarial, and the required input from third-party experts, lawyers and regular engagement with the courts can be incredibly costly.

Meanwhile, businesses operating in mainstream sectors have the ability to declare bankruptcy. This is also a court-ordered procedure that allows companies to satisfy lenders by liquidating assets, restructuring operations and finances, and to enjoy a break of sorts to make deals with creditors and renegotiate contracts and leases. Without a change to federal banking laws, cannabis companies are blocked from the benefits of bankruptcy, and the situation is only getting worse.

Given the current tight capital market environment, the increase in cannabis distressed assets, and the shortage of options to cannabis operators to address said challenges, is there a possible alternative option to alleviate the rather dire situation?

Genesis—Transition from Equity Financing to Debt Financing

Equity financing has been the most prominent way to raise capital in cannabis for the last several years. However,recent data collected by Viridian Capital Advisorsreveals that debt currently makes up 93% of capital raised by U.S. cannabis cultivation and retail companies, compared to 55.7% in U.S. industries overall.

This change in the capital-raising environment, which has led to an increased number of creditors in the sector, combined with continued market pressures on cannabis businesses to remain competitive, make it highly likely that the industry will inevitably see more receiverships.

Ultimately, while debt financiers are willing to lend cannabis businesses money, they expect to be paid back on time and often with high interest. If the business begins to struggle and enters a distressed phase that leads to receivership, the business assets will be sold off and the secured lenders will be the first to get paid, while the business itself is likely not to recover much.

Consider an Administrative and Collateral Agent

With receiverships punishingly expensive and the debt financing landscapebordering on predatorial, distressed cannabis businesses are desperate for any assistance or support available. An Administrative and Collateral Agent (ACA) could be the alternative support required, benefitting borrowers, lenders and regulators alike, and offering a more cost-effective and less punitive option to courts, receivers and lawyers.

Instead of dealing with the courts and an expensive court-appointed receiver, cannabis companies seeking relief could turn to an ACA to facilitate mediation between parties and create alignment within the industry, which does not exist today.

An ACA could create a level of trust, transparency and complementary positioning with industry participants that simply has not yet existed in cannabis. The use of an ACA could challenge the competing perceptions that there is already alignment between regulators, operators and lenders, or that a useful alignment between these parties could ever exist.

An ACA could be a real and valuable tool for state governments and regulators as they begin to understand that it is in their best interests to assist cannabis businesses in their states in the face of continued federal illegality and restrictions. Under a private agreement between parties, the ACA would conduct something more akin to an administrative receivership as opposed to the traditional judicial receivership that is the only current option for insolvent cannabis businesses to seek relief.

Building upon a Cannabis Credit Rating Framework

Ideally, an ACA would work within an industry-specific credit rating system for cannabis businesses in distress in order to work within an established framework for potential investors. If cannabis companies are ranked across an equitable, systematic and formulaiccredit rating system, borrowers, lenders and regulators would benefit from the quantifiable transparency afforded by said rating, and debt financing would have an inherent regulatory-like structure to prevent predatory lending. By avoiding the courts, the distressed cannabis company would save time, money and create a more attractive scenario for potential lenders.

Initial Path to Mitigating Solutions

While the current challenges facing cannabis businesses today are well documented and have risen to both creditors and regulators attention, a viable solution has yet to be identified. Most likely no one solution exists beyond waiting for the economic and capital environments to evolve. Yet, mitigating options do exist.

The introduction of an ACA is one such option. Questions remain as to the mechanics, regulatory, operative and fiscal alike, as well as who to trust to take it on. The introduction of a credit rating framework is the first step to creating a solid foundation from within which an ACA can operate transparently and equitably. Any potential buy-in from regulators, creditors and operators remains an open question.

All of that said, there is today an unprecedented set of market forces that is pushing all cannabis stakeholders to think outside of the box. The still growing opportunities in the cannabis industry, the will of operators to survive and succeed, as well as the increasing exposure from creditors, all point to not only an acceptance for the need of an alternative, but to the drive to do things differently.

Is your cannabis business in distress? Would you benefit from expert guidance and support in deciding on whether to enter into a receivership?Reach out to United CMC today.

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One-Hit Wonders

United States: Alex Malyshev And Melinda Fellner Discuss The Intersection Of Tax And Cannabis In New Video Series – Part VI: Licensing (Video)

Published

1 year ago

April 4, 2023

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Carter Ledyard is pleased to announce the launch of our short-video series on the cannabis industry focusing on business and legal issues for those companies and entities interested in doing business in New York.

This series offers a perspective on tax policy and specific statutes affecting cannabis businesses today. Our cannabis shorts are a great way to get to know our professionals, Alex Malyshev and Melinda Fellner, in quick and easy to watch clips, packed with the salient information you need.

In Part VI of our series, Alex and Melinda discuss licensing for cannabis businesses in New York. Watch below!